With more than one million page views and more than 4,000 items, this blog provides news and commentary on public policy, business and economic issues related to the $3 billion California stem cell agency, officially known as the California Institute for Regenerative Medicine(CIRM). David Jensen, a retired California newsman, has published this blog since January 2005. His email address is djensen@californiastemcellreport.com.

Friday, April 05, 2013

When does a financially struggling
biotech company turn down a $20 million “forgivable loan?”

When it is StemCells, Inc., of Newark,
Ca., and the cash is being offered by the $3 billion California stem
cell agency. The research program has handed out nearly 600 awards, and it is the first time that a recipient has rejected funding.

Late last month, StemCells, Inc., threw
in the towel on the $20 million awarded on its cervical spinal cord
injury application. In comments to analysts March 21, Rodney Young,
chief financial officer of the publicly traded company, said:

“The funding would have been in the
form of a forgivable loan, however, we have elected not to borrow
these funds from CIRM(the stem cell agency).”

“You may also recall that last
September, CIRM approved a separate application under the same
disease team program for Alzheimer's disease, which was also for up
to $20 million in the form of a loan. We remain in confidential
negotiations with CIRM regarding the terms and conditions that would
attach to this loan.”

The company provided no explanation for
rejecting the cash, either in the conference call transcript or in
its press release.

During the conference call, StemCells,
Inc., reported continuing losses. For 2012, net losses totaled $28.5
million compared to $21.3 million in 2011. Revenue for 2012 was $1.4
million compared to $1.2 million in the previous year.

The awards last year to StemCells,
Inc., founded by Stanford's eminent researcher Irv Weissman, stirred
up a bit of a ruckus. The spinal injury award was handed out
routinely in July. Scientific reviewers gave it a score of 79 and
recommended funding. It was another matter on the Alzheimer's
application. It was scored at 61. Reviewers said it did not merit
funding. But the company publicly appealed to the full board, which sent the
application back for more examination. It was rejected again.
Nonetheless, in September, the 29-member board approved the award on
a 7-5 vote, bypassing a rival Alzheimer's application scored at 63.
It was the first time in the eight-year-history of the agency that
its board approved an application that was rejected twice by
reviewers.

Approval came only after strong
lobbying by Robert Klein, former chairman of the board. Klein was
also chairman of the ballot campaign that created the agency, and
Weissman, who holds stock in StemCells, Inc., and sits on its board,
was a major fundraiser for the campaign.

The Los Angeles Times' Pulitzer
Prize-winning columnist, Michael Hiltzik, wrote in October that
the process was “redolent of cronyism.” He said a
“charmed relationship” existed among StemCells, Inc., its
“powerful friends” and the stem cell agency.

As for the remaining $20 million award,
Martin McGlynn, CEO of StemCells, Inc., expects “quick” action on
finally securing the cash.

Here is an exchange that came during
the March conference call between McGlynn and analyst Kaey Nakae ofAscendiant Capital Markets.

Nakae: “Okay. Just 2 more questions.
I guess the first one, as it relates to CIRM.
In deciding to decline the funding for spinal cord yet continuing to
pursue the funding for Alzheimer's, is there a difference in what
you're getting from them in terms of potential terms and conditions
that allow you to proceed on one and not the other, or is it the fact
that you're already in human with -- in spine, and still very
preclinical with Alzheimer's?”

McGlynn: :”I think you're very
definitely -- you're getting at some important criteria when one
considers how to fund programs whether you use debt or equity,
etcetera. So I wouldn't disagree with anything that you've outlined
or surmised. But I just would pray your indulgence until we're
finished, the negotiations with CIRM, which are coming to a close and
we expect those to resolve pretty quickly with regards to the
Alzheimer's program. And then quite frankly, we can be way more
forthcoming and way more disclosive with regards not only to our
decisions, but to our thinking.”

StemCells, Inc., was trading at about $1.65 at the time of this writing, down slightly from the previous
day. Its 52-week high is $2.67 and its 52-week low $0.59.

About Me

The California Stem Cell Report is the only nongovernmental website devoted solely to the $3 billion California stem cell agency. The report is published by David Jensen, who worked for 22 years for The Sacramento Bee in a variety of editing positions, including executive business editor and special projects editor. He was the primary editor on the 1992 Pulitzer Prize-winning series, "The Monkey Wars" by Deborah Blum, which dealt with opposition to research on primates. Jensen served as a press aide in the 1974 campaign and first administration of Gov. Jerry Brown. (Time served: two years and one week.) He writes from his sailboat on the west coast of Mexico with occasional visits to land. Jensen began writing about the stem cell agency in 2005, noting that it is an unprecedented effort that uniquely combines big science, big business, big academia, big politics, religion, ethics and morality as well as life and death. The California Stem Cell Report has been identified as one of the best stem cell sites on the Internet. Its readership includes the media (both mainstream and science), a wide range of academic/research institutions globally, the NIH and California policy makers.